S&P 500 Hits Another Record, Boosted by Bank Stress Tests, Infrastructure Deal; Dow Outperforms NASDAQ

The major U.S. stock indexes finished mixed on Friday with Dow outperforming the NASDAQ for the first time all week on the back of the announcement of President Joe Biden’s infrastructure program. The Dow Jones Industrial Average was also lifted by Nike and several banks.

Meanwhile, the benchmark S&P 500 Index ended the week at a record high on Friday, supported by weaker-than-expected inflation data that eased worries about a sudden tapering in stimulus by the Federal Reserve.

Cash Market Performance

In the cash market on Friday, the S&P 500 Index settled at 4280.70, up 14.21 or +0.33%. The blue chip Dow Jones Industrial Average finished at 34433.84, up 237.02 or +0.69% and the tech-heavy NASDAQ Composite closed at 14360.39, down 9.32 or -0.06%.

US Economic News – Steady PCE Inflation Suggests Inflation Surge May Be Temporary

Stocks were trading slightly better in the pre-market on Friday, but strengthened after a key inflation indicator that the Federal Reserve uses to set policy rose 3.4% in May, the fastest increase since the early 1990s, the Commerce Department reported Friday. The reading matched the expectation from economists polled by Dow Jones. The core index rose 0.5% for the month, which actually was below the 0.6% estimate.

U.S. consumer spending, which accounts for more than two-thirds of U.S. economic activity, held steady following an upwardly revised 0.9% jump in April. Economists polled by Reuters had forecast consumer spending rising 0.4%. Personal income fell 2.0%, however, this was better than the 2.5% estimate and a marked improvement from the previously reported -13.1%.

The University of Michigan consumer survey’s one-year inflation expectation dropped to 4.2% in June from a decade-high 4.6% in May. The survey noted that “consumers also believed that the price surges will mostly be temporary.” The five-to-10-year inflation expectation fell to 2.8% this month from 3.0% in May.

Finally, U.S. consumer sentiment ticked up in June, driven by an improving economic outlook among affluent households, a survey released on Friday showed. The University of Michigan’s Consumer Sentiment Index rose to a final reading of 85.5 from May’s final level of 82.9, though it was below June’s preliminary reading of 86.4. That was below the median forecast of 86.5 among economists polled by Reuters.

Successful Bank Stress Tests Open the Door to Buybacks, Dividend Hikes

Bank shares jumped after the Federal Reserve announced the banking industry could easily withstand a severe recession. The Fed, in releasing the results of its annual stress test, said the 23 institutions in the 2021 exam remained “well above” minimum required capital levels during a hypothetical economic downturn. The tests cleared the way for the banks to raise dividends and buy back more stock, which was suspended during the pandemic.

Wells Fargo climbed 2.6%, while Fifth Third and PNC all gained over 2%. JPMorgan and Bank of America both rose more than 1%.

Biden Infrastructure Deal Bolsters Dow Jones Industrials

President Joe Biden announced Thursday that the White House struck an infrastructure deal with a bipartisan group of senators. The lawmakers have worked for weeks to craft a roughly $1 trillion package that could get through Congress with support from both parties, CNBC reported.

The framework will include $579 billion in new spending on transportation like roads, bridges and rail, electric vehicle infrastructure and electric transit, among other things.

Construction-equipment maker Caterpillar Inc, a Dow component and popular infrastructure play, was among upside leaders on the benchmark average.